Libya, U.S. Probe Oil-Company Deals

New Government Aims to Shed Light on Petroleum Industry's Interaction With Gadhafi Regime

By

Benoît Faucon,

Summer Said and

Liam Moloney

April 8, 2012 2:12 p.m. ET

Authorities in the U.S. and Libya are investigating oil giants such as Italy's Eni SpA and France's Total SA over their past relations with the fallen Libyan regime, potentially casting a cloud on the companies' ambitions to expand their foothold in the country with the largest oil reserves in Africa.

Last year, a civil war that toppled Libyan leader Col. Moammar Gadhafi nearly shut down the country's crude production, stressing global oil markets. But as oil-company operations return to normal, the probes may complicate the oil companies' business in the country.

The Libyan general prosecutor's office is investigating "Libyan and foreign operators in Libya" for possible "financial irregularities," its deputy head, Abdelmajeed Saad, said in an interview.

In a March letter reviewed by The Wall Street Journal, the prosecutor's office formally asked the head of audit at Libya's National Oil Co. to supply oil-company documents. The letter mentions oil transactions between NOC and international traders Vitol Group and Glencore International PLC as examples of documents it is seeking. Though the Libyan probe focuses mostly on the Gadhafi era, the letter indicates that the request involving the traders includes the period of the country's civil war through the present.

The companies investigated also include Eni, the biggest foreign oil player in Libya, and Total, Mr. Saad said.

Neither the letter nor the deputy prosecutor mentioned any specific allegations involving the companies they named.

NOC's marketing manager, Ahmed Shawki, confirmed that NOC and its dealings with foreign companies, in general, are "under investigation from the general attorney."

"NOC submitted all documents. [The prosecutor's office is] doing the right thing," said Mr. Shawki, who wasn't in charge of the company under the late Mr. Gadhafi. He said he did "everything according to the law," but declined to comment on the Gadhafi era.

NOC Chairman Nuri Berruien declined to comment.

News of the Libyan probe comes after the U.S. Securities and Exchange Commission sent formal requests to Eni and Total related to the companies' Libyan businesses. U.S. oil giant Marathon Oil Corp. also said in its annual SEC filing in February that it was asked to hand over documents about its Libyan operations.

Eni said in its recent annual filing with the SEC that the U.S. investigation is in connection with "certain illicit payments to Libyan officials, possibly violating the U.S. Foreign Corruption Practice Act." The Italian company said the request covered the period from 2008, when Eni and others renegotiated contracts in Libya, to early 2011, when the civil war erupted.

Total also recently disclosed a request from the SEC in a filing, but didn't elaborate, except to say other companies also had been targeted.

The SEC, Eni, Glencore and Marathon all declined to comment. Total and Vitol were unavailable for comment.

The new Libyan regime, which faces its first elections in June, is under pressure to shed light on oil deals under Mr. Gadhafi, whose overthrow was driven partly by discontent over alleged corruption.

Mr. Saad, of the general prosecutor's office, said that if wrongdoing is established "the fine will be at least double the amount of money" lost to the Libyan government. Also, "it will affect securing any future contract," he said.

The pressure might complicate any future negotiation for international oil companies in Libya, one of the few countries still open to foreign investment at a time when others are tightening the noose on Westerners or are off limits due to sanctions. Eni, which normally gets about 14% of its total production form Libya, wants to double that amount and invest between $30 billion and $35 billion in the coming decade.

—Ángel González in Houston, Geraldine Amiel in Paris, Alexis Flynn and Iman Dawoud in London contributed to this article.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.